$1 billion rush seen for HDFC Bank as special window for foreigners opens Friday

The move to close a monthly window that permits foreigners to trade among themselves in companies where overseas ownership limits have been exhausted from July 1 could cause a surge in buying on Friday, analysts say.

businessUpdated: May 31, 2018 12:28 IST

Bloomberg

Gurgaon, India- May 04, 2018: HDFC bank ATM located at Unitech cyber park sector-38. Debit and credit cards of several people were blocked due to withdrawal of money from several accounts as soon as users got their salary credited in their bank accounts in Gurgaon, India, on Friday, 04 May 2018. (Photo by Parveen Kumar/Hindustan Times)(Parveen Kumar/Hindustan Times)

HDFC Bank Ltd. may extend its record run as the “last opportunity” for global funds to buy shares of India’s most-valuable lender, in a special window opens Friday, Macquarie Capital Securities (India) Pvt. said.

The move to close a monthly window that permits foreigners to trade among themselves in companies where overseas ownership limits have been exhausted from July 1 could cause a surge in buying on Friday, analysts Suresh Ganapathy, Nishant Shah and Akash Nainani wrote in a note dated May 30. The brokerage sees potential for $1 billion of shares in the lender to trade when the June window opens.

The segment was used by foreigners to trade in stocks, largely lenders, after nearing their ownership cap. Previously, the overseas holding in banks had to fall 2 percentage points below the 74% cap before fresh offshore investments would be allowed, according to the central bank’s rules. Until then, such investors traded through the special window.

This segment is being disbanded after the regulator asked exchanges and depositories to monitor foreign holdings in real time and flag when they come within 3% of the investment cap. Trading in the foreign segment window -- popularly called the “6 Lakh Series” -- often leads to a premium as stocks are to be purchased from another overseas investor.

For instance, HDFC Bank shares trading in the foreign segment jumped 4.5% to Rs 2,180 rupees at 10.33 am, versus a record Rs 2,088 for the ordinary shares. The bank’s American depositary receipts rallied 8.6% on Wednesday, the most since August 2011, as global funds will have only the ADR route to buy the stock after the window is disbanded in July.

Indian companies, except banks and certain sectors, are allowed to set foreign ownership limits for themselves, while the central bank restricts overseas holding in lenders.